Starwood 2005 Annual Report Download - page 76

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
volatility inherent in external markets for these types of investments. In assessing potential impairment for
these investments, the Company will consider these factors as well as forecasted Ñnancial performance of its
investment. If these forecasts are not met, the Company may have to record impairment charges.
Plant, Property and Equipment. Plant, property and equipment, including capitalized interest of
$10 million, $5 million and $7 million incurred in 2005, 2004 and 2003, respectively, applicable to major
project expenditures, are recorded at cost. The cost of improvements that extend the life of plant, property and
equipment are capitalized. These capitalized costs may include structural improvements, equipment and
Ñxtures. Costs for normal repairs and maintenance are expensed as incurred. Depreciation is provided on a
straight-line basis over the estimated useful economic lives of 15 to 40 years for buildings and improvements; 3
to 10 years for furniture, Ñxtures and equipment; 3 to 7 years for information technology software and
equipment and the lesser of the lease term or the economic useful life for leasehold improvements. Gains or
losses on the sale or retirement of assets are included in income when the assets are sold provided there is
reasonable assurance of the collectibility of the sales price and any future activities to be performed by the
Company relating to the assets sold are insigniÑcant.
The Company evaluates the carrying value of its assets for impairment. For assets in use when the trigger
events speciÑed in Statement of Financial Accounting Standards (""SFAS'') No. 144, ""Accounting for the
Impairment or Disposal of Long-Lived Assets,'' are met, the expected undiscounted future cash Öows of the
assets are compared to the net book value of the assets. If the expected undiscounted future cash Öows are less
than the net book value of the assets, the excess of the net book value over the estimated fair value is charged
to current earnings. When assets are identiÑed by management as held for sale, the Company discontinues
depreciating the assets and estimates the fair value of such assets. If the fair value of the assets which have
been identiÑed for sale is less than the net book value of the assets, the carrying value of the assets is reduced
to fair value less selling costs. Fair value is determined based upon discounted cash Öows of the assets at rates
deemed reasonable for the type of property and prevailing market conditions, appraisals and, if appropriate,
current estimated net sales proceeds from pending oÅers.
Goodwill and Intangible Assets. Goodwill and intangible assets arise in connection with acquisitions,
including the acquisition of management contracts. In accordance with the guidance in SFAS No. 141,
""Business Combinations,'' and SFAS No. 142, ""Goodwill and Other Intangible Assets,'' the Company does
not amortize goodwill and intangible assets with indeÑnite lives. Intangible assets with Ñnite lives are
amortized on a straight-line basis over their respective useful lives. The Company reviews all goodwill and
intangible assets with indeÑnite lives for impairment by comparisons of fair value to book value annually, or
upon the occurrence of a trigger event. Impairment charges, if any, are recognized in operating results.
Frequent Guest Program. Starwood Preferred Guest» (""SPG'') is the Company's frequent guest incentive
marketing program. SPG members earn points based on their spending at the Company's properties, as
incentives to first-time buyers of VOIs and residences, and, to a lesser degree, through participation in affiliated
partners' programs, such as those offered by airlines. Points can be redeemed at most of the Company's owned,
leased, managed and franchised properties as well as through other redemption opportunities with third parties,
such as conversion of airline miles. Properties are charged based on hotel guests' expenditures. Revenue is
recognized by participating hotels and resorts when points are redeemed for hotel stays.
The Company, through the services of third-party actuarial analysts, determines the fair value of the
future redemption obligation based on statistical formulas which project the timing of future point redemption
based on historical experience, including an estimate of the ""breakage'' for points that will never be redeemed,
and an estimate of the points that will eventually be redeemed. The Company's management and franchise
agreements require that the Company be reimbursed currently for the costs of operating the program,
including marketing, promotion, communications with, and performing member services for the SPG
members. Actual expenditures for SPG may diÅer from the actuarially determined liability.
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